DMG Blockchain Solutions Inc.

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the DMG Blockchain Solutions Q2. 2025 update conference call. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available on the company's website. Joining us today from DMG Blockchain Solutions is Sheldon Bennett, the company's Chief Executive Officer, and Stephen Eliskew, Chief Operating Officer. During this call, management will be making forward-looking statements, including statements that address DMG Blockchain Solutions' expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in DMG Blockchain Solutions' most recently filed periodic reports and the company's recent press releases, particularly the cautionary statements within. The content of this call contains time-sensitive information that is accurate only as of today, May 22, 2025. Except as required by law, DMG Blockchain Solutions disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Sheldon and Stephen. Sheldon?

Thank you, Chantel. Good afternoon, and thanks to everyone who has joined the call today. My name is Sheldon Bennett. I am the CEO and founder of DMG Blockchain Solutions. With a similar format as recent quarters, first, I will provide an overview of the company's achievements in the past quarter. I will then pass the call to Stephen, who will review the company's performance. We will end the call with our Q&A session based on questions submitted to us prior to the call, as well as those using Zoom chat. So now to our highlights of recent achievements. First, our core plus software and services strategy. As an update on September Trust, we recently reported in a press release, Alvin Young has been appointed interim CEO on the departure of his predecessor. As Alvin's prior role was Chief Revenue Officer, his primary goal remains customer acquisition and onboarding new clients by mid-calendar year, with a revenue ramp-up expected exiting the year. We continue to focus on partnering with crypto trading platforms, including Bosonic, with which we are also aiming to realize value from our investment. We have completed the testing phase of utilizing Fireblocks wallets that incorporate DMG's Petra technology so that Bitcoin held by systemic trust can maintain its carbon neutral status by being sent through TerraPool for transaction processing. This is the last remaining component we have needed to enable DMG's carbon neutral Bitcoin ecosystem. For TerraPool, we are focused on partnerships and client acquisition. Our focus is to work with a limited number of larger mining entities looking to leverage the portion of their energy mix that is carbon neutral to have the opportunity to increase their revenue. The value proposition of TerraPool becomes even greater when we can offer a suite of complementary products, including Helm, Reactor, and Explorer. Now, a few words on each. First, Helm, DMG's data center infrastructure management software, continues to be enhanced to be best-in-class software for maximizing the profitability of Bitcoin mining. We are utilizing Helm in-house to ensure the software scales to manage tens of thousands of air-cooled and direct liquid-cooled mining servers. We plan to incorporate AI features not only with respect to our code development, but also as how to maximize the productivity of the mining technicians on the floor. We plan to deploy Helm with beta customers by the end of this quarter and offer general availability in the September quarter. For TerraBool clients, we see Helm as an upgrade to their existing solutions, which are either general purpose offerings built on antiquated software stacks or were built for in-house use only. Next, Reactor is our proprietary software for assuring the delivery of hash rate over the term of a hash rate contract and gives TerraPool clients the options to sell hash rate and be paid upfront for delivering hash rate over the term of a contract, which is a useful treasury management tool that is unique for any pool to offer. We have relationships with several brokers of hashrate that can readily supply us with a market of buyers, including those who may pay a premium for carbon neutral hashrate. Optimization of reactor continues to be a key capability we plan to offer concurrently with Helm as we plan to integrate reactor along with TerraPool and Helm in a single seamless environment. Lastly, Explorer, which is the original software required for blocks here purchased back in 2018. We have pulled in our development of Explorer to this quarter to be a product initially to offer downloadable reports for the blockchain, for the Bitcoin blockchain, a level of basic functionality that seems to have disappeared from any provider. We initially did this for ourselves, but decided to offer it to the market. Longer term, we plan to add more advanced analytics capabilities to Explorer. With our schedule for launching all of these products in the next few months, we will soon have a critical mass of products to be able to realize our vision of monetizing a carbon neutral Bitcoin ecosystem where TerraPool supplies carbon neutral blocks that are in turn filled by systemic trust, by digital asset custodians subsidiary with transactions from financial institutions that want the option to have a regulatory compliant and carbon neutral way of sending Bitcoin. This is a monumental achievement for DMG as we finally are now able to match the vision we have discussed with you for years with a comprehensive product offering that can enable us to achieve this goal. Beyond the next few months, we have no shortage of ideas for further building our software and service offerings. More important for us than adding more new products is first to gain new customers to drive revenue while we incrementally add capabilities to existing products to build and strengthen our moat. Regarding our core data center infrastructure, first for AI, we purchased two megawatts of prefabricated data center infrastructure from a party that we had announced previously in an MOU to acquire a full 10 megawatts of infrastructure. Well, we did not disclose the purchase price. The fact that our unaudited Bitcoin balance declined in April should give an indication that we are serious about investing into AI computing. We encouraged by our discussions with public sector entities and enterprises regarding potential co-location and direct offtake agreements. There's tremendous appetite, not only for AI compute in Canada, but to keep the data in Canada, the infrastructure, and as much of the IP within Canada in light of the uncomfortable geopolitical dialogue between the US and Canadian heads of state. How quickly we can translate our discussion to agreements remains to be seen. We have dedicated staff who understand the public sector agencies focused on this effort, which is stable stakes to participating in delivering solar urban AI. Last October, we signed a memorandum of understanding with the Malahat nation to build out 30 megawatts of generative AI compute capacity split between both parties. We're now focused on executing agreements with the Malahat, as well as more actively pursuing the financing of smaller projects ahead of a larger AI data center project financing, which could be several hundred million dollars just for infrastructure. Next, for Bitcoin mining, with a portion of our hydro miners energized during the quarter, we realized 1.76 exahash with a fleet efficiency of 22.8 joules a terahash. We were negatively impacted by three days of curtailment in February, during which we operated with only about 15 megawatts of firm power at a Christine Lake facility. At the very beginning of May, we reached our short-term hash rate goal of 2.1 exahash. As disclosed in our recent press release, we are likely to operate under 2.1 exahash through the spring and summer months as we optimize our fleet to operate in higher ambient temperature environments. Regarding Bitcoin mining site expansion, we remain focused on lowering our cost of energy, which includes expanding the use of non-firm energy in Christina Lake and finding new sites with low cost energy. Regarding the site that DMEG announced in May of 2023, we're still working towards concluding an agreement. We continue to evaluate locating Bitcoin miners at other locations. We'll provide updates when we sign definitive agreements at these locations. Regarding our 3x hash goal by the end of this calendar year, we were looking to achieve this goal with non-dilutive financing. We plan to achieve this goal by converting a portion of our Christina Lake facility into hydro mining. We are in the planning stage of making this conversion. We have somewhat shifted our stance on keeping Bitcoin mining at Christina Lake as we encourage that for the near term, non-firm power provides us with more competitive pricing. We are now looking into calendar 2026 for expansion to other sites, which would most likely be in Canada. And now for a summary of our strategy. First, DMG's core plus software and services. As we have stated previously in calendar 2025, we are focused on customer acquisition, a platform expansion for both Systemic Trust and TerraPool. We need very limited headcount expansion to do this. As for both platforms, we are initially focused on onboarding relatively few large customers. We remain focused on onboarding for systemic trust clients by mid-year, along with TerraPool throughout the rest of the year. Regarding platform expansion, we plan to add all the needed pieces that clients are demanding by mid-year, a more exhaustive platform for systemic trust, along with a critical mass of software for TerraPool, including custodial wallets for clients by systemic trust, Helm data center infrastructure management, Reactor for Bitcoin treasury management, and Blocks here Explorer. For DMG's core data center infrastructure, over the past quarter, we've had our heads down focused on client acquisition for our AI infrastructure. As we now physically own two megawatts of infrastructure, we see this as a catalyst for our winning deals with a focus on public sector clients where the SCIFT military grade rating is a key selling feature. Given we are past the election of Canada's new prime minister, we're now working with the respective ministries that actually procure AI infrastructure and their new leadership. Even with a big portion of our attention on AI, Bitcoin mining remains foundational to our core strategy, and hence we are still planning to grow to 3x a hash by the end of the calendar year and to do this in a non-dilutive way. Now I'll hand it over to Stephen to review the company's performance.

Thank you, Sheldon. I'm Stephen Illescue, DMG COO. First, a few words about the company's overall position. In the March quarter, our cash short-term investments plus Bitcoin balance was 61.9 million, a decrease of 3% sequentially and up 42% year over year. We are utilizing more than half our Bitcoin balance as collateral for our Signum Bank loan facility, which we have utilized for capital purchases. Note that while our Signum loan balance was unchanged at 20 million in the March quarter versus the prior quarter, we previously guided that we intended to reduce our loan balance, a process we began in April and have continued in May. We believe we should lower our level of debt in light of what could be a lot more market volatility ahead. While some may have already forgotten the Liberation Day exacerbated Bitcoin price pullback and subsequent recovery with Bitcoin now at all-time highs, we still remain cautious about the macro environment and will likely continue to gradually sell Bitcoin to pay down the loan at least for this quarter. For our mining operations, we reached our 2.1x hash goal at the beginning of May. As we believe hydro mining and direct liquid cooled AI servers are the future of high performance computing, this deployment positions us to execute on that future. We have learned much about hydro infrastructure, for which we have had issues, in part that delayed our deployment. By and large, we are pleased with the operation of the hydro miners themselves, which have run as expected, although we've yet to see how they run in the heat of summer. We were also negatively impacted by increased energy rates in the March quarter related to seasonality. This was DMG's first full quarter of operating, about half its fleet on non-firm power. As we're now subject to seasonality, we expect the winter months to be a high cost period. Supporting this expectation, we have seen significant declines in our blended energy rates in March and April. Finally, as Sheldon detailed in his update on AI, we're making material progress towards securing offtake agreements with our focus on Canadian public sector and private enterprise clients. Additionally, as we purchase two megawatts of prefabricated data center infrastructure, this will add to our asset base that we will report in the June quarter. Now to review our financial results. In our March quarter, our revenue increased 9%, a 12.6 million from 11.6 million the prior quarter. Mainly a self-mining revenue increased a similar percentage on 8% higher average realized hash rate. We've mined 91 Bitcoin down from 97 the prior quarter as our hash rate increase was more than offset by a 14% in the network's Bitcoin per exahash generation. Our hosting revenue decreased 4% sequentially to 0.2 million in our March quarter. We expect hosting revenue to decline to near zero this calendar year as our existing customers retire their fleets and we utilize our capacity for self-mining and AI. Operating and maintenance costs increased 14% to 7.6 million from the prior quarter as we operated 8% more hash rate on slightly improved efficiency, 22.8 joules a terahash. The balance of the increase was caused by higher seasonal energy rates. Note that our non-firm power is subject to curtailment, and as we disclosed in our financial statements and the press release, we curtailed once in the March quarter for three consecutive days. We have had no subsequent curtailment events and believe our Christina Lake energy rates may end up slightly lower this calendar year than if we operated solely on firm power. and they should be sequentially down in the current quarter. Also note that the 15 megawatts of firm power we have will ultimately support our AI venture with the Malahat, and we are working with our utility to secure additional firm power for future AI growth. Our margin percentage on our revenue, less operating and maintenance costs was 40% in the March quarter, down from 43% prior quarter, mainly on higher energy rates. Consequently, our energy costs to mine a Bitcoin was about 55K US. As we will likely utilize non-firm power for much of our energy mix going forward, we will experience more volatility in our mining costs than we've had historically. As a proxy for cash flow from our business, which assumes we're selling 100% of our generated Bitcoin, our earnings before other items, excluding depreciation and amortization and stock-based comp, was 2.5 million or 20% on a percentage basis in the March quarter, a decrease from 2.6 million and 22% the prior quarter, again due in large part due to higher energy rates. Our cash flow from operations was minus 1 million in the March quarter as we sold 7.1 million less Bitcoin than we earned. Our cash balance declined by 3.5 million as we funded much of our capital needs through our cash balance, which allowed our Bitcoin balance to rise 13% from the prior quarter to 458 Bitcoin. As we already reported, our Bitcoin balance subsequently declined in April to an unaudited amount of 351 Bitcoin. Investors should not expect our Bitcoin balance for the remainder of the current quarter to rise from April levels as we liquidate Bitcoin for operational expenses and paying down debt. Non-mine expenses, excluding depreciation, amortization and stock-based comp, We're 2.5 million in the March quarter, down 4% from the prior quarter of 2.6 million. In our 2025 financial year, given lower expected interest expense on our Signum loan for the balance of the year and cost control on headcount, we now expect non-mine expenses to rise only modestly this year. We're adding headcount to support program management, especially given what we need to accomplish on AI, business development for our software initiatives, and operations. For at least the near term, these are targeted hires, helping us to ensure operational execution and make the needed transition from being a company that historically did not need to have marketing and sales talent. Depreciation expense of 4.3 million in the March quarter was flat from the prior quarter. As a percentage of revenue, our depreciation expense was 34%, which we believe is among the lowest of our peers and demonstrates our rapid improvement in capital efficiency as we have grown hash rate. We believe we are making good choices to balance the need to maximize cash generation while minimizing our total cost of mining by having purchased near-leading-edge miners, which includes the T21 and S21 series of hydro miners at approximately a million dollars a megawatt or less, while underclocking our legacy miners to extend their useful life. Our earnings before other items was minus 2.6 million in the March quarter, similar to the minus 2.5 million the prior quarter. Our net income was minus 3.3 million or minus two cents a share versus minus 3.1 million and minus two cents a share of the prior quarter. Regarding our balance sheet, our cash short-term investments plus Bitcoin holdings decreased 3% to $61.9 million from the prior quarter and increased 42% from the prior year. The value of our property and equipment and long-term deposits decreased 8%. to 55.9 million from the prior quarter as depreciation exceeded our capital additions. Accordingly, our total asset base decreased 6% to 129.5 million from the prior quarter and increased by 9% from the prior year. In the March quarter, we sold 39 Bitcoin, generating 5.1 million of cash. Thus, we sold 43% of the Bitcoin amount mined versus the prior quarter of selling 81% of the Bitcoin mined. It is possible that with our Bitcoin sales this quarter, DMG will sell more than 100% of its mined Bitcoin in fiscal 2025. And as a treasury policy, investors should continue to expect us to sell most or all of the Bitcoin we mine. and that our Bitcoin holding should decline as a percentage of our total asset base over time. We do not expect to purchase Bitcoin on the open market as investors are free to do so independently of their investment in DMG. Regarding raising new capital, as for a future where AI could be a major component of our business, our capital raising would most likely be dead instruments tied to offtake and co-location contracts. For Bitcoin mining expansion, we are most likely to continue to utilize Bitcoin-backed loans as well as other forms of debt financing. Note that as we look to our next phase of expansion towards 3x a hash, we now believe we can source near leading edge 13 to 16 joule per terahash equipment later this year that should cost in the million dollar range million dollar per megawatt range significantly lower than the two to two and a half million dollars per megawatt that we expected prior. I will now hand the call back to Sheldon to summarize our prepared comments and we will answer questions. Sheldon?